Merger deal doubles Mattress Firm stock price

1of2A Mattress Firm storefront on West Roosevelt Rd. and South Canal St. on Thursday, July 14, 2016, in Chicago. (Brandon Chew/Chicago Tribune/TNS)Photo: Brandon Chew, MBR

2of2A South African company is buying Mattress Firm.Photo: Gary Fountain, For the Chronicle

A 114 percent gain in Mattress Firm's stock price after news that it would be acquired made millions for many of the Houston-based company's executives and institutional shareholders.

"The premium represents a nice return for shareholders, and it's a vote of confidence for the path the company is heading down," Mattress Firm CEO and president Ken Murphy said Monday.

The $2.4 billion buyout offer from Cape Town, South Africa-based Steinhoff International Holdings on Sunday also marked a new chapter in the Mattress Firm's history of mergers and acquisitions.

Murphy, who will remain in his current positions after the deal is completed, said Steinhoff was fully aware of the work ahead for Mattress Firm due to the Houston retailer's recent series of acquisitions that left it with more than $2 billion in debt. It also reported a $119 million loss in its first quarter.

He said the company had been in talks with Steinhoff for the last few months.

Mattress Firm will continue to consolidate all brands under the Mattress Firm banner by 2017 and explore whether to renew leases for duplicate and inefficient stores, Murphy said. Its nearly 11,000 employees nationwide will retain their jobs, he said.

Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm in New York City, said Steinhoff's offer shows it "obviously feels confident" Mattress Firm "can get the work done."

The deal is expected to complete in the next couple of months.

Steinhoff, which said it was eager to move into the U.S., agreed to pay $64 per share, more than double what Mattress Firm stock was trading for on Friday. It is just under the stock's 52-week high of $65.51.

Some of Mattress Firm's biggest shareholders have already seen a win since Sunday's merger announcement, regulatory filings show.

The New York City hedge fund 40 North Management owns 4.6 million shares, or 12 percent of Mattress Firm, and has been on a recent buying binge, scooping up 893,000 shares, some as recently as last week, according to the filings with the U.S. Securities and Exchange Commission. Its stock, worth $135 million on Friday, was worth $290 million by day's end Monday.

Los Angeles-based Capital Group, which controls more than $1 trillion in global assets, has been buying Mattress Firm, too. It now owns 2.9 million shares - and its value rose to $188 million from $87 million.

The largest single owner, J.W. Childs Associates, a Massachusetts private equity firm specializing in buyouts and recapitalizations, holds 13.6 million shares, more than one-third of the company's stock. That stake, worth about $400 million on Friday, turned into $870 million by the close of market on Monday.

John W. Childs, the equity firm's chairman, sits on the Mattress Firm board and himself owned 326,000 shares, according to April regulatory filings.

Capital Group, 40 North Management and J.W. Childs Associates were not immediately available for comment.

Several executives and board members could also benefit as the company regularly gave stock awards and options to its executives.

Former president and current board member Dale Carlsen has received 412,000 shares, according to regulatory filings. They are now worth $26 million. Carlsen, who quit last year, founded Sleep Train, purchased by Mattress Firm two years ago.

Adam Blank, general counsel and operations chief at Sleepy's, bought by Mattress Firm this year, has 230,000 shares, now worth almost $15 million.

Mattress Firm executive chairman and former CEO Steve Stagner amassed 967,000 company shares that now are valued at more than $61 million. As part of the merger deal, Stagner is also joining Steinhoff's executive committee.

Davidowitz said he does not see any potential difficulty with federal regulators over the merger deal. If the government had concerns over Mattress Firm's growing market share, he said, it would have intervened already.